I’ve worked with over 20,000 sales people in 20 countries since 1983, helping them connect money to value. Salespeople fall in love with their products. Their customers think the stuff costs too much. Through my company, Net Worth Consulting, I help salespeople bridge the value gap, walking in their clients’ shoes to define “good” (Hint: that doesn’t necessarily mean cheaper). I have a Masters with Highest Honors in Finance, and am a former broker and local radio personality. In 2005 I fell in love with improv, and just had to co-found a training program and a troupe. The similarities between money and improv amazed me, so I’ve just published Fully Invested: Improv Explains the World of Money, and Vice Versa (www.fullyinvestedthebook.com ).
We’re all making it up as we go along so why not play to our strengths and admit it?

What Do the Beam Acquisition of Pinnacle Vodka and the Borgias Have in Common?

My post-grad corporate accounting class threw me for a complete loop when we studied debits and credits. I could not for the life of me understand how a debit could be ‘good’ and a credit could be ‘bad’. Turns out they just mean, in balance sheet terms, the left side and the right side. Or the blue side and the green side. Or maybe the male side and the female side, like in HBO’s The Borgias Season Two, Episode Two. (Yes, I shall explain. But you’ll have to wait a couple of paragraphs.)

Balance sheets show what the company bought on the left side, and how they paid for what they bought on the right side. The numbers are mirror images of one another. They have to…wait for it…b a l a n c e. In the US and Western Europe, asset values (left side) reflect the purchase price of the assets. But clearly that is only a way to value them. Think about the last time you had an insurance claim to replace assets. Unless you bought a replacement value policy, the company wanted to reimburse you for what you paid. Not what the assets were worth, or what it would cost to replace them. So, like in the Dix painting, the mirror is a subjective view of reality.

Subjective Views of Reality

In buying assets, like Pinnacle Vodka, one company might overpay, the other underpay — for the same type of asset . The former will be fatter/richer/more able to borrow. The latter will be thinner/poorer/easier to take over. The right side of the balance sheet shows where the company got the money to buy the assets on the left side. There are only two sources of new money: debt, also known as liabilities as in the borrower has a liability to pay back the debt, or equity. Beam is paying all cash for Pinnacle, to the tune of roughly $600M. Maybe they are borrowing to do it — or they could just spend some of their $2.4B in current assets (12/31/11) who knows? By the way, current assets are not the assets a company has currently — all the assets are held currently. Current assets are what a company has that is close to currency. The value of current assets, which include money due in (receivables), inventory, and plain old cash, does not change (much) with the market. Think of them as what the CEO could hold in a bag while standing on the roof of the corporate headquarters waiting for his helicopter.

Beam will come up with $600M and hand it to the owners of privately held Pinnacle. Beam will value the acquisition on their Balance Sheet at $600 M on the asset side (left) and , assuming they do borrow the money, show a $600M increase on the liabilities and equity side (right). This is called double entry bookkeeping.

In The Borgias, Giulia Farnese, the Pope’s #1 mistress, takes him on a tour of Rome’s poor neighborhoods. They are accompanied by the Pope’s #2 mistress, an androgenous artisan who passes as a man in a bad wig because women are not allowed to learn a trade. The Pope is shocked, shocked I tell you by all the pigeons and the orphans sleeping on the street. So he upbraids the Cardinal responsible for dispensing charity who blows him off with lines like: The poor will always be with us. So the Pope assigns Giulia to oversee decades of records and figure out where the charity has gone to. She scares the Cardinal by announcing that the Florentines have a new invention very useful for tracking assets called….double entry bookkeeping. The Cardinal is more afraid of a woman examining the accounts than he is of getting caught manfully stealing.

It sounds a lot like an improv warm-up game our troupe is particularly good at called ‘Ten Things’. We stand in a circle. One person points to another and demands (real examples): ‘ Ten things you don’t want to tell your mother!’ Or, ‘Ten movies you would never want to see made!’ Or ‘Ten flavors of babyfood!’ You can bet next time I am going with ‘Ten flavors of vodka!’

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